Solution Manual for Personal Financial Planning15t
m m m m m m
h Edition by Randy Billingsley, Lawrence J. Gitman,
m m m m m m m m
Michael D. Joehnk
m m
,SOLUTION MANUAL FORm m
Personal Financial Planning 15th Edition by Randy Billingsley, L
m m m m m m m m
awrence J. Gitman, Michael D. Joehnk
m m m m m
Understanding the Financial m m
Planning ProcessChapter 1
m m m m
HowmWillmThismAffect mMe?
Themheartmofmfinancial mplanning mismmaking msuremyourmvaluesmlinemupmwithmhowmyoumspendmandms
ave.mThatmmeansmknowing mwheremyoumaremfinanciallymandmplanning monmhowmtomgetmwheremyoumw
antmtombeminmthemfuturemnommatter mwhatmlifemthrowsmatmyou.mFormexample,mhowmshouldmyour mpla
nmhandlemthemprojectionmthatmSocialmSecuritymcostsmmaymexceedmrevenuesmbym2035?mAndmwhatmi
fmthemgovernmentmdecidesmtomraisemtaxmratesmtomhelpmcover mthemfederalmdeficit?mAnminformedmfin
ancialmplanmshouldmreflectm suchmuncertaintiesmandm more.
Thismchapter moverviewsmthemfinancial mplanning mprocessmandmexplainsmitsmcontext.mTopicsminclud
emhowmfinancial mplansmchangemtomaccommodatemyourmcurrentmstageminmlifemandmthemrolemthatmfi
nancialmplannersmcanmplayminmhelping myoumachievemyourmobjectives.mAfter mreading mthismchapter m
youmwillmhavemamgoodmperspectivemonmhowmtomorganizem yourmoverallmpersonalmfinancial mplan.
LEARNING GOALS m
LG1mIdentify mthembenefitsmofmusingmpersonalmfinancialmplanning mtechniquesmtommanagemyourmfi
nances.
Keymconceptminmthismsectionmismthemplanning mmodelmasmdisplayedminmExhibitm1.1.mYourmstandard
m ofm living m ism greatlymimpactedm bym your m spendingm habitsm andm your mcommitmentm tom saving.m Your
m spending m ism measuredm bym your mpropensity mtom consume.m Wealth m ism them total m valuem ofm all mpro
pertymyoumownmlessmthemamountmthatm youmowemtomothers.
ACTIVITY:m Askmthemstudentsmtomassumemthatmtheymhavemjustm inheritedm$100,000.m Whatm willmyo
umdomwithmthem money?mWritemdownmthreemwaysm youmwillmspendmormusemthem money.
,Askmthemstudentsmtomsharemonemitemmwithmthemclassmandmrecordmwhatmtheymsaymsomthatmthementi
remclassmcanmreflectmonmthemanswers.mHopefully,matmleastmamfewmwillmmentionminvesting mevenmifmo
nlym$10,000mofmthemamount.mUsemtheirmanswersmtomdiscussmtaking m caremofmcurrentm needsmversus
m futurem needs.
Focusmonmtheir mpropensitymtomconsumemandmitsmimpactmonmaccumulating mwealth.mPointmo
utmthemFinancialmPlanningmTip,m ―BemSMARTm inmPlanningm YourmFinancialmGoals.‖
UsemExhibitm1.2mtomshowmhowmthemaveragempersonmearnsmandmspendsmtheirmmoneymandmExhibitm1
.6mtomhelpmthemstudentm identifymwheremtheymarem now.
LG2mDescribemthempersonalmfinancialmplanning mprocessmandmdefinemyourmgoals.
Dwightm Eisenhower, marmym general mandm presi de nt, mismquotedmasmsayingm ―Plansmaremuseless;mPlan
ning mismpriceless‖.mThemprocessmofmplanning mallowsmyoumtomfocusmonmthemissuesmthatmaremmostmi
mportantmandmtombemreadymwhenmthingsmchange.
Exhibitm1.3mlistsmthemSixmStepmFinancialmPlanning mProcess.mThemfirstmandmmostmimportantmismde
fining myourmfinancial mgoals.mExhibitm1.6mlistsmgoalsmbymagemtomdemonstratemhowmgoalsmchangem
overmtime.mUsemthemexamplesminmExhibitm1.5mtomaskmstudentsmifmthemassumptionsmaremrealistic.
m Yes,m
themanswer misminmthemexhibit,mbutmmanymwillmnotmhavemreadmchapter matmthismpoint.mFormy
ourmuse,mthemassumptionsmare:
Assumption m1:mSaving mamfewmthousandmdollarsmamyearmshouldmprovidemenoughmtomfundmmymchi
ld‘smcollegemEducation.
Assumption m2:mAnmemergencymfundmlasting m3m monthsmshouldmbemadequate.
Assumption m3:mImwillmbemablemtomretirematm65mandmshouldmhavemplentymtomlivemonminmretire
ment.mAssumption m4:mI‘mmrelying monmthemrulemofmthumbmthatmImwillmneedmonlym70mpercentm
ofmmympre-mretirementm incomemtom managemnicelyminmretirement.
Theremaremseveralmworksheetsminmthembook.mWorksheetm1.1mgivesmthemstudentmamformatmtomwri
temdownmtheir mPersonalmFinancial mGoals.mTheremismpower minmwriting mdownmgoalsm[andmmostmany
m other m
plan].mRecording mthemgoalmandmthenmreviewing mthreemmonthsmlater mwillmhelpmyoumtomkee
pmfocusmonmthemgoal.
LG3mExplain mthemlifemcyclemofmfinancialmplans,mtheirmroleminmachievingmyourmfinancialmgoals,mh
owmtomdealmwithmspecialmplanningmconcerns,mandmthemusemofmprofessionalmfinancialmplanners.
Exhibitm1.7mcanmhelpmfocusmthemattentionmonmhowmgoalsmdiffer mbetweenmthemvariousmstagesmofml
ife.mSectionm1-
3bmlistsmvariousmdecisionsmthatmyoumwillmhavemtommakemovermyourmlife.mThemsectionm1-
3cmaddressesmSpecialmPlanning mConcerns.mWorksheetm1.2mfocusesmonmthemfinancial mbenefitmtomt
hemfamilymofmthemsecondmincome.mIfmthemsecondmincomemismfrommamminimummwagemjob,mitmmay
m notm bem a m
goodmfinancialmdecision.m Ofmcoursemhaving mamjob,mevenmam minimummwagemjob,m maymgi
vemthempersonmpsychicm incomemthatm willmoverridemthem financial mimpact.
Whilemperhapsmoffmtopic,mImrecallmamhighmschoolmsciencemteacher mwhomwasmamsmoker.mHemwalke
dmthroughmthemamountmofmmoneymhemspentmonmpurchasing mtobaccom products.mThatmcomputatio
nmhadma
, lotmtomdomwithmmymdecisionmtomnotm smoke.mHowmthismrelatesmtomthemcoursemismthatmthismismanmill
ustrationmofmhowmthemfinancial mimpactmofmamdecisionmcanmdrivemthemdecision.
LG4mExaminemthemeconomicmenvironment’sminfluencemonmpersonalmfinancialmplanning.
Formolder mfolks,mthemfinancial mcrisismofm2008-
2009mismfreshminmourmmemory.mTomthemstudentmofm2021,mthatmcrisismismmoremofmhistorymthanmlife.
m Ifm youm canm sharem a mwar m storym onm howm youm werem personallym impacted,m itm will m helpm bring m them i
mpactmofmthemworldmeconomymonmfinancial mplansmtomlife.mThembookmspeaksmhowmtommanagemthis
m typem ofm crisis,m butm youm hadm tom gom throughm itm tom reallym understandm them impactm itm had.
Themvaluemofmprofessional madvicemismgreatlymunderstated.mIfmbymtalking mtomamprofessional myoumca
nmpreventmmaking mammistakem--mthatmcanmbemofmamgreatmvalue.mSectionm1-
3emspeaksmtomthemusemofmprofessionalmfinancialmplanners.mExhibitm1.9mlistsmoutmthemvariousmcertific
ationsmthatm plannersmhave.
Economicmormbusinessmcyclesmaremreal.mPerhapsmthemmostmusefulmthing maboutmthemcyclesmismthem
knowledgemthatmifmthingsmarembad,myoumknowmtheymwillmgetmbetter.mOfmcourse,mwhenmlifemismgoo
d,myoumknowmthatmthembadmcyclemwillmcomemaroundmagain.mThus,m financialmplanning mrequiresmsav
ingminmthemgoodmtimesm formthembadmtimes.mm Seemthem―Testm Yourself‖mquestionm1-
17mform amshortm discussionmofmbusinessmcycles.
Thempowermofmcompounding mismrarelymunderstood.mExhibitm1.8mshowsmhowmthemamountm$10
,000mwillmgrowmovermtime.mThemlonger mtheminvestmentmstaysminvested,mthemgreater mthemamo
untm–mthempower mofmcompoundm interest.
LG5mEvaluatemthemimpact mofmage,meducation,mandmgeographic mlocation monmpersonalmincome.
Exhibitm1.12msaysmitmall.
LG6mUnderstand mthemimportancemofmcareermchoicesmandmtheirmrelationship mtompersonalmfinancia
lmplanning.
Exhibitm 1.13mshowsmthatmthemchoicemofmamcollegemmajormhasmamfinancialmimpact.mOfmcoursemmone
ymcannotmbuymhappiness,mbutmhaving mambitmhelps.mIfmyoumreallymwantmtombemanmelementarymschool
m teacher,m youm mustm recognize m thatm youm will m notm havem asm muchmwealthm asm am lawyer mor m financialm
analyst.
Themsummarymofmthemlearningmgoalsmatmthemendmofmthemchapter mshouldmaidmthemstudentminmrev
iewing mthemchapter mwhenmexammtimemcomes.mItmwillmbemusefulmtompointmoutmtomthemstudentmh
owmtomusemthismmaterial.
LinkmtomSolutionsmtomFinancialmPlanning mExercises
Pre-tests
m m m m m m
h Edition by Randy Billingsley, Lawrence J. Gitman,
m m m m m m m m
Michael D. Joehnk
m m
,SOLUTION MANUAL FORm m
Personal Financial Planning 15th Edition by Randy Billingsley, L
m m m m m m m m
awrence J. Gitman, Michael D. Joehnk
m m m m m
Understanding the Financial m m
Planning ProcessChapter 1
m m m m
HowmWillmThismAffect mMe?
Themheartmofmfinancial mplanning mismmaking msuremyourmvaluesmlinemupmwithmhowmyoumspendmandms
ave.mThatmmeansmknowing mwheremyoumaremfinanciallymandmplanning monmhowmtomgetmwheremyoumw
antmtombeminmthemfuturemnommatter mwhatmlifemthrowsmatmyou.mFormexample,mhowmshouldmyour mpla
nmhandlemthemprojectionmthatmSocialmSecuritymcostsmmaymexceedmrevenuesmbym2035?mAndmwhatmi
fmthemgovernmentmdecidesmtomraisemtaxmratesmtomhelpmcover mthemfederalmdeficit?mAnminformedmfin
ancialmplanmshouldmreflectm suchmuncertaintiesmandm more.
Thismchapter moverviewsmthemfinancial mplanning mprocessmandmexplainsmitsmcontext.mTopicsminclud
emhowmfinancial mplansmchangemtomaccommodatemyourmcurrentmstageminmlifemandmthemrolemthatmfi
nancialmplannersmcanmplayminmhelping myoumachievemyourmobjectives.mAfter mreading mthismchapter m
youmwillmhavemamgoodmperspectivemonmhowmtomorganizem yourmoverallmpersonalmfinancial mplan.
LEARNING GOALS m
LG1mIdentify mthembenefitsmofmusingmpersonalmfinancialmplanning mtechniquesmtommanagemyourmfi
nances.
Keymconceptminmthismsectionmismthemplanning mmodelmasmdisplayedminmExhibitm1.1.mYourmstandard
m ofm living m ism greatlymimpactedm bym your m spendingm habitsm andm your mcommitmentm tom saving.m Your
m spending m ism measuredm bym your mpropensity mtom consume.m Wealth m ism them total m valuem ofm all mpro
pertymyoumownmlessmthemamountmthatm youmowemtomothers.
ACTIVITY:m Askmthemstudentsmtomassumemthatmtheymhavemjustm inheritedm$100,000.m Whatm willmyo
umdomwithmthem money?mWritemdownmthreemwaysm youmwillmspendmormusemthem money.
,Askmthemstudentsmtomsharemonemitemmwithmthemclassmandmrecordmwhatmtheymsaymsomthatmthementi
remclassmcanmreflectmonmthemanswers.mHopefully,matmleastmamfewmwillmmentionminvesting mevenmifmo
nlym$10,000mofmthemamount.mUsemtheirmanswersmtomdiscussmtaking m caremofmcurrentm needsmversus
m futurem needs.
Focusmonmtheir mpropensitymtomconsumemandmitsmimpactmonmaccumulating mwealth.mPointmo
utmthemFinancialmPlanningmTip,m ―BemSMARTm inmPlanningm YourmFinancialmGoals.‖
UsemExhibitm1.2mtomshowmhowmthemaveragempersonmearnsmandmspendsmtheirmmoneymandmExhibitm1
.6mtomhelpmthemstudentm identifymwheremtheymarem now.
LG2mDescribemthempersonalmfinancialmplanning mprocessmandmdefinemyourmgoals.
Dwightm Eisenhower, marmym general mandm presi de nt, mismquotedmasmsayingm ―Plansmaremuseless;mPlan
ning mismpriceless‖.mThemprocessmofmplanning mallowsmyoumtomfocusmonmthemissuesmthatmaremmostmi
mportantmandmtombemreadymwhenmthingsmchange.
Exhibitm1.3mlistsmthemSixmStepmFinancialmPlanning mProcess.mThemfirstmandmmostmimportantmismde
fining myourmfinancial mgoals.mExhibitm1.6mlistsmgoalsmbymagemtomdemonstratemhowmgoalsmchangem
overmtime.mUsemthemexamplesminmExhibitm1.5mtomaskmstudentsmifmthemassumptionsmaremrealistic.
m Yes,m
themanswer misminmthemexhibit,mbutmmanymwillmnotmhavemreadmchapter matmthismpoint.mFormy
ourmuse,mthemassumptionsmare:
Assumption m1:mSaving mamfewmthousandmdollarsmamyearmshouldmprovidemenoughmtomfundmmymchi
ld‘smcollegemEducation.
Assumption m2:mAnmemergencymfundmlasting m3m monthsmshouldmbemadequate.
Assumption m3:mImwillmbemablemtomretirematm65mandmshouldmhavemplentymtomlivemonminmretire
ment.mAssumption m4:mI‘mmrelying monmthemrulemofmthumbmthatmImwillmneedmonlym70mpercentm
ofmmympre-mretirementm incomemtom managemnicelyminmretirement.
Theremaremseveralmworksheetsminmthembook.mWorksheetm1.1mgivesmthemstudentmamformatmtomwri
temdownmtheir mPersonalmFinancial mGoals.mTheremismpower minmwriting mdownmgoalsm[andmmostmany
m other m
plan].mRecording mthemgoalmandmthenmreviewing mthreemmonthsmlater mwillmhelpmyoumtomkee
pmfocusmonmthemgoal.
LG3mExplain mthemlifemcyclemofmfinancialmplans,mtheirmroleminmachievingmyourmfinancialmgoals,mh
owmtomdealmwithmspecialmplanningmconcerns,mandmthemusemofmprofessionalmfinancialmplanners.
Exhibitm1.7mcanmhelpmfocusmthemattentionmonmhowmgoalsmdiffer mbetweenmthemvariousmstagesmofml
ife.mSectionm1-
3bmlistsmvariousmdecisionsmthatmyoumwillmhavemtommakemovermyourmlife.mThemsectionm1-
3cmaddressesmSpecialmPlanning mConcerns.mWorksheetm1.2mfocusesmonmthemfinancial mbenefitmtomt
hemfamilymofmthemsecondmincome.mIfmthemsecondmincomemismfrommamminimummwagemjob,mitmmay
m notm bem a m
goodmfinancialmdecision.m Ofmcoursemhaving mamjob,mevenmam minimummwagemjob,m maymgi
vemthempersonmpsychicm incomemthatm willmoverridemthem financial mimpact.
Whilemperhapsmoffmtopic,mImrecallmamhighmschoolmsciencemteacher mwhomwasmamsmoker.mHemwalke
dmthroughmthemamountmofmmoneymhemspentmonmpurchasing mtobaccom products.mThatmcomputatio
nmhadma
, lotmtomdomwithmmymdecisionmtomnotm smoke.mHowmthismrelatesmtomthemcoursemismthatmthismismanmill
ustrationmofmhowmthemfinancial mimpactmofmamdecisionmcanmdrivemthemdecision.
LG4mExaminemthemeconomicmenvironment’sminfluencemonmpersonalmfinancialmplanning.
Formolder mfolks,mthemfinancial mcrisismofm2008-
2009mismfreshminmourmmemory.mTomthemstudentmofm2021,mthatmcrisismismmoremofmhistorymthanmlife.
m Ifm youm canm sharem a mwar m storym onm howm youm werem personallym impacted,m itm will m helpm bring m them i
mpactmofmthemworldmeconomymonmfinancial mplansmtomlife.mThembookmspeaksmhowmtommanagemthis
m typem ofm crisis,m butm youm hadm tom gom throughm itm tom reallym understandm them impactm itm had.
Themvaluemofmprofessional madvicemismgreatlymunderstated.mIfmbymtalking mtomamprofessional myoumca
nmpreventmmaking mammistakem--mthatmcanmbemofmamgreatmvalue.mSectionm1-
3emspeaksmtomthemusemofmprofessionalmfinancialmplanners.mExhibitm1.9mlistsmoutmthemvariousmcertific
ationsmthatm plannersmhave.
Economicmormbusinessmcyclesmaremreal.mPerhapsmthemmostmusefulmthing maboutmthemcyclesmismthem
knowledgemthatmifmthingsmarembad,myoumknowmtheymwillmgetmbetter.mOfmcourse,mwhenmlifemismgoo
d,myoumknowmthatmthembadmcyclemwillmcomemaroundmagain.mThus,m financialmplanning mrequiresmsav
ingminmthemgoodmtimesm formthembadmtimes.mm Seemthem―Testm Yourself‖mquestionm1-
17mform amshortm discussionmofmbusinessmcycles.
Thempowermofmcompounding mismrarelymunderstood.mExhibitm1.8mshowsmhowmthemamountm$10
,000mwillmgrowmovermtime.mThemlonger mtheminvestmentmstaysminvested,mthemgreater mthemamo
untm–mthempower mofmcompoundm interest.
LG5mEvaluatemthemimpact mofmage,meducation,mandmgeographic mlocation monmpersonalmincome.
Exhibitm1.12msaysmitmall.
LG6mUnderstand mthemimportancemofmcareermchoicesmandmtheirmrelationship mtompersonalmfinancia
lmplanning.
Exhibitm 1.13mshowsmthatmthemchoicemofmamcollegemmajormhasmamfinancialmimpact.mOfmcoursemmone
ymcannotmbuymhappiness,mbutmhaving mambitmhelps.mIfmyoumreallymwantmtombemanmelementarymschool
m teacher,m youm mustm recognize m thatm youm will m notm havem asm muchmwealthm asm am lawyer mor m financialm
analyst.
Themsummarymofmthemlearningmgoalsmatmthemendmofmthemchapter mshouldmaidmthemstudentminmrev
iewing mthemchapter mwhenmexammtimemcomes.mItmwillmbemusefulmtompointmoutmtomthemstudentmh
owmtomusemthismmaterial.
LinkmtomSolutionsmtomFinancialmPlanning mExercises
Pre-tests
